Derivatives and Non-Financial Companies: Lessons from the Financial Crisis

Rodrigo Zeidan

No 1404, a/ Working Papers Series from Italian Association for the Study of Economic Asymmetries, Rome (Italy)

Abstract: The paper identifies failures of corporate governance that allow non-financial companies around the world to develop hedging strategies that lead to hefty losses in the aftermath of the financial crisis. The sample is comprised of 346 companies from 10 international markets, of which 49 companies (and a subsample of 13 distressed companies) lose a combined US$18.9 billion. An event study shows that most companies that present losses in derivatives experience negative abnormal returns, including a number of companies in which the effect is persistent after a year. The results of a probit model indicate that the lack of a formal hedging policy, no monitoring to the CFOs, and considerations of hubris and remuneration contribute to the mismanagement of hedging policies.

Keywords: Risk Management; Hedging; Derivatives; Corporate Governance; Event Study (search for similar items in EconPapers)
JEL-codes: G01 G32 G34 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-07
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ais:wpaper:1404

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